The Future Role of the Chinese Middle Class by Cheng Li & Ryan McElveen

Cheng Li is the director of research and senior fellow at the John L. Thornton China Center in the Foreign Policy program at The Brookings Institution. He is also a director of the National Committee on U.S.- China Relations. He is the author of numerous books, including China’s Emerging Middle Class. He holds a Ph. D. from Princeton University.Ryan McElveen is a researcher at The Brookings Institution Thornton China Center. He holds a Master of International Affairs degree from Columbia University.

"The Chinese government must find the social equilibrium between middle class consumption desires...and ecological security and public health...""The government must commit to putting its words into political action..."

When the Rolex store in the swanky Sanlitun shopping district of Beijing shut its doors earlier this year, sunk by lackluster sales, it was a sign that the government frugality campaign launched in December by the new Chinese Communist Party (CCP) leader Xi Jinping had begun to take effect. Similarly, after Xi described the ideal banquet to consist of “four dishes and a soup,” upscale Beijing restaurants in January saw their revenues decline by 35 percent from the previous year. Not only do these instantaneous changes in habit among Beijing’s financially well-off upper class reflect the power behind Xi’s bully pulpit, but they also point to the irony that has emerged at the highest levels of Chinese policymaking. As China’s leaders advocate for increased domestic consumption to stimulate the economy, the luxury goods market has taken a hit as leaders are pushed to avoid ostentation.

These two policy shifts may, on the surface, seem contradictory, but they are part of a larger push to placate a middle class that has emerged as a core constituency with its own unique needs and desires. As China’s growth model shifts from an export-based model to a domestic consumption- based model, the middle class, more than any other group, holds the keys to the governance and prosperity of the country. Just as other countries are watching to see how this transition unfolds for geopolitical reasons, companies and banks abroad are also closely observing the rise of the Chinese middle class, knowing that its purchasing power will reshape the global economy. Hampering the transition to consumption-based growth, however, are significant negative feelings among the middle class. The Chinese Ministry of Health revealed in 2011 that the majority of Chinese professionals—51 percent—showed signs of depression. Such widespread depression likely stems from the extreme socioeconomic pressures in Chinese society, including skyrocketing housing prices, environ- mental degradation, health scares, and official corruption, all of which have tainted the public’s confidence in the government and the country’s future.

Middle class grievances over government policy have become increasingly evident, partly because the expansion of the middle class has slowed and economic disparity has increased. Disillusionment over the CCP leadership during the past decade is arguably most salient among the members of the middle class who often complain that they, rather than the upper class, have shouldered most of the burden of former President Hu Jintao’s harmonious society policies targeting assistance for vulnerable socio-economic groups. The high unemployment rate among recent college graduates, who usually come from middle-class families and are potentially future members of the middle class, should alert the Chinese government.

To express their displeasure, the middle class often turns to organizing “mass incidents” (protests involving more than 100 participants), more than 100,000 of which occur each year according to official estimates. Xi Jinping apparently understands the link between these manifestations of public pessimism and CCP authority, and has sought to make very public—albeit basic—improvements to please the country’s middle class.

The current political discourse in China reveals that the government recognizes the importance of address- ing the needs of the middle class. After all, the party must do so to survive. As the party turned to the simultaneous implementation of a frugality campaign and policies to increase domestic consumption, the implications were clear: the party has the political will to change and motivate the middle class to become the optimistic consumers they have the potential to become. Indeed, only when middle class consumption reaches its potential and when middle class interest in public health, rule of law, and freedom of speech is institutionally protected will Xi Jinping’s “Chinese Dream” of national rejuvenation truly become a reality.

This article presents the distinctive characteristics of the middle class, its multifaceted interests, and its political demands, arguing that the new administration faces a critical balancing act as it seeks to implement a sustainable consumption-based growth model. (purchase article...)